Home › Services › Debt Recycling
My number one service
Debt Recycling in Australia
Debt recycling is a strategy that converts debt you can’t claim, like your home loan, into debt you generally can, an investment loan.
It’s the main strategy I use across my whole client base. It’s also one of the most misunderstood. So I’ll explain it properly first, then show you how to get started.
2026 Budget update: you can still borrow to invest in ETFs, and the interest is still 100% tax deductible. See what changed.
General information only. Debt recycling carries real investment and interest rate risk.
The basics
What Is Debt Recycling?
Here’s the simple version.
You make extra repayments on your mortgage. You redraw the same amount through a separate loan split. You invest it.
Because that borrowing was used to invest, the interest on it is generally tax deductible. The interest on your home loan never was.
It’s one of the most effective strategies I use for homeowners with equity and stable income. Done properly, more of your debt ends up working for you.
Why it matters for tech executives
- You’re likely on the 47% top tax rate, so every deductible dollar of interest counts.
- Bonuses and RSU vests create lump sums you can recycle.
- Your home equity is often sitting idle while your mortgage stays non deductible.
The short version
Debt recycling for tech executives, in 75 seconds.
A general example only. Your numbers will differ.
Step by step
How Debt Recycling Works, Step by Step
It follows the same 5 steps, repeated over time.
- Pay down the home loan. You make extra repayments that reduce the non deductible part of your mortgage.
- Redraw through a separate split. You redraw the same amount through a separate loan split or line of credit, kept apart from your mortgage.
- Invest it. The money goes into shares, managed funds or another income producing asset.
- Claim the interest. Because the new borrowing was used to invest, the interest on it generally becomes tax deductible.
- Repeat. Each cycle converts more of your mortgage into a deductible, invested loan.
The separate split matters more than most people think. It’s what lets you meet the ATO’s purpose test cleanly. Mixing investment and personal money in one loan is one of the most common mistakes I see.
This isn’t a one off. It’s an ongoing strategy that usually runs for years. Most people start gradually, using surplus income or an offset balance, then repeat the cycle as capacity allows. The pace depends on your equity, your income stability and how much debt you’re comfortable carrying.
Want the wider picture? Read 7 powerful ways to use debt to build wealth.
2026 Budget update
You can still borrow for ETFs. The interest is still 100% tax deductible.
The 2026 Budget did not change this. You can still borrow to invest in ETFs, and the interest is still 100% tax deductible against your salary.
Negative gearing on established property is ending. Negative gearing on shares and ETFs is not.
That is the short version of the biggest change to investment tax in decades. It was announced on Budget night, 12 May 2026. It passed Parliament on 25 June 2026. It is now law.
What changed for property
From 1 July 2027, the rules change for established investment property bought after 7:30pm on 12 May 2026.
A rental loss on that property can no longer reduce the tax on your salary. It can only be used against income from residential property. Any excess is carried forward.
Properties you already held on Budget night keep the old rules until you sell. New builds that add to housing supply can still be negatively geared.
What did not change
The new limits only apply to residential property. Shares, ETFs and commercial property stay under the existing rules.
So when you borrow to buy shares or ETFs, the interest is still 100% tax deductible against your salary, as long as the loan is used only for the investments and kept separate from your home loan. That is exactly how debt recycling works.
Why this matters if you earn $400K or more
For 25 years, the default move for a high earner was an investment unit, negatively geared against a 47% salary. For established property bought after Budget night, that move is gone.
Borrow for a diversified ETF portfolio instead, and the interest is still 100% tax deductible. On a $1M investment loan at 6%, that is $60,000 of interest a year. At 47%, up to $28,200 of it can come back to you at tax time.
The other change: capital gains tax
The same law changes capital gains tax, and this one does apply to shares.
From 1 July 2027, the 50% CGT discount is replaced with indexation for inflation, plus a 30% minimum tax on real gains. Gains made before 1 July 2027 keep the 50% discount.
On the top tax rate, the 30% minimum changes little. Whether indexation costs you more or less depends on your returns. Higher real returns mean more tax than before.
So structure matters more than ever. Whose name the investments sit in. When you sell. How you sequence the sell down.
What I am telling clients
- Planning an established investment property? Run the numbers again before you sign.
- Already own one? Nothing changes until you sell. There is no need to rush.
- Got $1M or more of equity sitting idle in your home? For most of my clients, debt recycling into ETFs is now the cleaner tax play.
- Get the structure right before 1 July 2027.
Source: Treasury Laws Amendment (Tax Reform No. 1) Act 2026. General information only.
Illustration only
A Worked Example
Say you already own $50,000 of shares. Here’s one cycle.
Before
| Home loan (not deductible) | $800,000 |
| Investment loan | $0 |
| Share portfolio | $50,000 |
After one cycle
| Home loan (not deductible) | $750,000 |
| Investment loan (generally deductible) | $50,000 |
| Share portfolio | $50,000 |
Same total debt. Same $50,000 of shares. But $50,000 of your debt may now be tax deductible.
- Sell the shares. You sell your $50,000 share portfolio.
- Pay down the home loan. The $50,000 goes onto your home loan, cutting the non deductible debt from $800,000 to $750,000.
- Borrow it back and reinvest. You take out a $50,000 investment loan through a separate split and buy the shares back.
At today’s rates, the interest on that $50,000 might be around $3,000 to $3,500 a year. Because the money was borrowed to invest, that interest is generally tax deductible. On the 47% top marginal rate, the after tax cost could drop to around $1,600 to $1,900 a year.
Your mortgage keeps getting paid down at the same rate as before. Debt recycling doesn’t slow that down. It adds an investment and a deductible loan alongside it.
The $50,000 can grow over time. It can also fall in value. It’s exposed to the market like any other investment. Selling shares can also trigger capital gains tax, so the timing of the sale matters.
These figures are illustrative, not a forecast. Your numbers depend on your loan structure, your tax rate and what you invest in. Scale the $50,000 up or down and the mechanics, and the risks, stay the same.
In practice
How I Set It Up With Clients
The $50,000 example shows the idea. Here’s how I usually structure it in real life.
- Set up the line of credit first. Most of my clients start with a separate investment line of credit, usually $1 million, set up alongside the home loan.
- Surplus goes into the offset. All year, your surplus income sits in your offset account, cutting the interest on your home loan from day one.
- Once a year, pay down the principal. We move the offset balance onto the home loan principal. The same amount can then be drawn from the line of credit and invested.
- Get started with a staged entry. Up front, we might draw $250,000 from the line of credit and invest around $50,000 a month, rather than putting it all into the market on one day.
That’s the structure I use most often. It gets money working early, keeps the deductible and non deductible debt clearly separate, and turns the annual recycle into a simple routine.
These figures show how I often structure it, not a recommendation for you. The right size for the line of credit depends on your equity, your income and what your lender will approve.
Eligibility
Who Debt Recycling Suits (and Who It Doesn’t)
Is your income high enough? Many of the clients I set this up for earn $400K or more as a household. There’s no official threshold. What matters most is surplus: being able to save at least $4,000 a month above your minimum home loan repayment. A higher, stable income gives you more room to service the extra borrowing, and to ride out a period of weak or negative returns.
If your pay is part base, part bonus and RSUs, like most tech executives, I take a more conservative approach. I size the strategy on your base salary, not your best quarter.
Temperament matters as much as the numbers. Staying invested through a downturn, rather than reacting to it, is usually what decides whether this works.
It tends to suit you if
- You can save at least $4,000 a month above your minimum home loan repayment
- You have at least $1M of equity in your family home, and at least $500K in super
- Your household income is stable and comfortably covers both loans
- You have a timeframe of 7 years or more
- You can stay invested through a market fall
- You have adequate insurance to protect your income
It tends not to suit you if
- You’re uncomfortable holding debt
- Your income is tight or uncertain
- You’ll need the money within a few years
- A downturn would push you to sell
Know the risks
Risks and Considerations
I’ll say it plainly. This carries real risk.
You’re taking on more debt and more market exposure at the same time. If markets fall, your investment can be worth less than you borrowed. The loan still has to be paid.
Borrowing and market risk move together here. A downturn cuts the value of your investment while the debt tied to it stays exactly the same.
The tax deduction improves the numbers. It doesn’t remove the investment risk or the interest rate risk. Weigh both, not just the tax.
Market downturns
Losses are magnified just like gains.
Interest rates
Rate rises increase the cost of both loans.
Long term only
It suits a timeframe of 7 years or more.
Income and insurance
You need secure income, and cover in case it stops.
Tax
How the Tax Treatment Works
In Australia, whether interest is deductible generally depends on what the borrowed money is used for, not what the loan is secured against. This is the ATO’s purpose test, set out in Taxation Ruling TR 95/25.
If redrawn money is clearly used to buy an income producing investment, the interest on that portion is generally deductible. If the same equity is used for personal spending, it isn’t.
Where people get it wrong
The loan structure matters as much as the strategy. A separate, documented split makes the purpose easy to show.
Mixing investment and personal borrowing in one account is where I see deductions put at risk. Most explanations skip this part.
Always confirm your own tax position with a tax professional before you start.
How I help
Debt recycling, set up properly from day one.
The loans, the investments, the tax and the cash flow, coordinated in one plan.
Loan structure
We work with you and your lender to set up the right splits, so deductible and non deductible debt stay separate.
Investment portfolio
A diversified portfolio built for your timeframe, using my core and satellite approach.
Cash flow system
A simple system so surplus income lands on the home loan every month, not in your spending.
Bonuses and RSU vests
A plan for every bonus and vest, so lump sums get recycled rather than spent.
Protection
Insurance reviewed so both loans are covered if your income stops.
Ongoing reviews
Each year I check the rates, the portfolio and the next recycle, so the plan stays on track.
Client example
A Sales Director, early 50s.
US listed tech company in Sydney. A $550K mortgage, $1M in shares and commission that swung every year.
As part of his Blueprint, I set up a $1 million investment line of credit against his home equity, invested into a diversified portfolio with tax deductible interest. It sat alongside a quarterly RSU sell down and a set plan for every bonus.
Investment line of credit
$1M
Set up against his home equity and invested in a diversified portfolio, with tax deductible interest.
Results depend on your circumstances. Details changed for privacy.
83 LinkedIn recommendations
What clients say on LinkedIn.
Questions
Frequently Asked Questions
What is debt recycling?
It’s a way to swap your non deductible home loan for a tax deductible investment loan over time. You pay down the mortgage, redraw the same amount to invest, and repeat.
Is debt recycling risky?
Yes. You’re borrowing to invest, so debt and market movements both affect the result. It can suit people with stable income, real equity and genuine tolerance for risk. It isn’t a low risk strategy and I never treat it as one.
How much equity do I need to start debt recycling?
There’s no fixed minimum. You need enough equity, and stable enough income, for it to make sense after interest costs and risk. An Early Retirement Clarity Call is the quickest way to work through your numbers.
Is debt recycling legal? Does the ATO allow it?
Yes. It’s a legitimate structure the ATO recognises when it’s set up correctly. Deductibility depends on clearly showing the purpose of the borrowing, which is why the loan structure and records matter.
Can I use a bonus or vested shares to start debt recycling?
Yes. A bonus or RSU sale can speed things up by increasing the first amount you recycle. But you don’t need one. The strategy also works with ongoing surplus income.
What’s the difference between debt recycling and negative gearing?
They’re related but different. Negative gearing usually means an investment, often property, makes a loss that offsets your other income. Debt recycling is about converting home loan debt into deductible investment debt. They can overlap, but they’re not the same strategy.
Can I still negatively gear shares and ETFs after the 2026 Budget?
Yes. The negative gearing changes only apply to residential property. Shares, ETFs and commercial property stay under the existing rules. You can still borrow to invest in shares or ETFs, and the interest is still 100% tax deductible against your salary.
Does debt recycling still work after the negative gearing changes?
Yes. Debt recycling turns home loan debt into investment debt used to buy income producing assets, usually shares or ETFs. Those assets are outside the new limits. If you recycle into an established investment property bought after 12 May 2026, the losses can no longer reduce the tax on your salary from 1 July 2027.
What happens to the CGT discount on my ETFs?
From 1 July 2027, the 50% discount is replaced with indexation for inflation and a 30% minimum tax on real gains. Gains made up to 1 July 2027 keep the 50% discount. Depending on your returns, you may pay a little more or a little less than before.
Create an income for life
Find out if debt recycling suits you.
15 minutes. No cost, no obligation. Not ready yet? Start with the free Debt Recycling Playbook.
